Central bankers trigger global share sell-off

Concerns that the world’s leading central banks may not indefinitely support global equities by printing money sparked the largest one-day sell-off in Australian stocks in almost a year and pushed the key market index below 5000.

Despite a number of upbeat profit results from key blue chip companies on the busiest day of the current reporting season, nervous investors pushed the major S&P/ASX 200 Index below 5000, wiping about $35 billion off the market, a week after it breached the key level for the first time since April 2010.

The index fell 118.6 points, or 2.3 per cent, to 4981 on Thursday, its largest one-day fall since May 18 last year, when it fell 2.7 per cent.

Fund managers were quick to describe the sell-off as predictable after the past seven weeks had ­delivered the best start to a year for shares since 1980 but warned volatility could erode some of the gains.

“One thing that we can be sure of is it’s going to be another volatile year. We are going to get these sorts of ­sell-offs because we still have issues in Europe, the deficits in the US and, of course, China. None of these issues have gone away, although they have been put to one side this year,’’ said Investors Mutual investment ­director Anton Tagliaferro. He said recent gains may have come too fast.

“The underlying fundamentals haven’t improved that much and we are going to get these bouts of nervousness from time to time,’’ he said.

Sell-off ‘a good healthy shake-out’

Shares are up 7 per cent year to date and have risen 15 per cent over the past three months as managers report money shifting into the sharemarket and away from safer investments such as bonds and term deposits. Investors had parked billions of dollars there since the global financial crisis shook their confidence in stocks five years ago.

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“The sell-off is just a good healthy shake-out and we are still in a bull market,’’ said Wilson Asset Management chairman Geoff Wilson.

“After the sharp gains we’ve seen in such a short time everyone has been saying the market had to have a breather. But none of the events today, the Fed, China or earnings, change a thing. Bull markets always climb a wall of worry and this one is no different."

BT Investment Management’s head of equity strategies, Crispin Murray, agreed the drop was a sign that shares had run too hard, too fast but a sharp pause from the US Federal Reserve was unlikely.

“The reaction was driven by what’s been a very strong run over the year to date," he said.

“When you combine a market that’s run hard with potentially a couple of policy directional shifts its very easy to see a short, sharp sell-off."

Regional sharemarkets fell after the release of the minutes from the January meeting of the US Federal Reserve’s Open Market Committee meeting showed there were growing doubts about the open-ended nature of their quantitative easing program.

Chinese call for home-purchase restrictions

Some officials are worried about the risks linked to the program that saw the Fed announce late last year that it would buy as much as $US85 billion a month and keep rates at almost zero until the US unemployment rate falls to 6.5 per cent from its current level of just under 8 per cent.

The pace of the selling picked up in the afternoon following reports that Chinese cities have had excessively fast price gains and should promptly impose home-purchase restrictions if they haven’t already.

The Shanghai Composite fell 3 per cent. Minutes from the latest Bank Of England Monetary Policy Committee meeting showed outgoing governor Mervyn King was one of three members to have voted in favour of restarting the BoE’s quantitative easing program. Six members voted against, citing concerns about inflation which led to the suspension of the asset purchase program.

In another twist, incoming BoE governor Mark Carney called for a debate on tolerating higher inflation if it means ongoing loose monetary policy can boost economic growth.

This would mark a shift towards nominal gross domestic product ­targeting from inflation targeting, which was implemented by Sir Mervyn about 20 years ago.

The global events took the gloss off some positive results from big companies on Thursday, including Qantas Airways, which posted a 10 per cent lift in first-half earnings. Its shares closed up almost 3 per cent to $1.66.

“Generally reporting season has been quite constructive. I think most companies, without getting bullish, would have at the margins said things are less worse than they were and some early signs of improvement," Mr Murray said.

The dollar fell US1¢ to $US1.026 on concerns the US dollar might improve if the Fed takes away some of their stimulus measures.